Background information on OECD Principles on Effective Public Investment Across Levels of Government

The issues at stake

The governance of public investment is complex because it is a shared responsibility across an increasing number of actors and levels of government. More than two-thirds of public investment is conducted at the sub-national government level in OECD countries, i.e. by states, regions, provinces, and municipalities.

Share of public investment at the sub-national level‌

The impact of public investment depends to a large extent on HOW governments manage it, and notably how different levels of government involved co-ordinate and develop capacities to design and implement relevant investment projects. Poor investment choices not only waste limited public resources and erode public trust; they also hamper future growth opportunities.

To help countries address governance challenges linked to public investment across levels of government, the OECD has developed a Recommendation to help governments assess the strengths and weaknesses of their public investment capacity in a multi-level governance perspective. It offers valuable le guidance for countries whatever their institutional framework and degree of decentralisation.

Did you know that…

Public investment represents 15% of total investment (public and private) in the OECD

Public investment represents 2.7% of OECD GDP

On average 50% of public investment in OECD countries is directed to education and economic affairs. (Economic affairs include most of public support to economic sectors and firms, in particular industry, manufacturing and construction, transport, communication, and R&D).

At the sub-national level, more than one-third of sub-national investment in the OECD area is allocated to economic affairs

Public investment funds dropped by almost 8% annually since 2010 on average in the OECD

Annual changes in public and private investment (GFCF) in real terms in the OECD (1996-2012)

The Recommendation

The Recommendation was adopted in March 2014 as an official OECD instrument.

Background and rationale

Effective public investment is important in both good times and bad. Given that public budgets across the OECD are likely to remain tight for some time, all levels of government will have to contribute to doing better with less? This means developing both their individual and collective capacities to deliver more efficient public investment.

The purpose of the principles set out in the Recommendation is to help governments at all levels to assess the strengths and weaknesses of their public investment capacity, a critical shared responsibility across levels of government, and set priorities for improvement. The OECD will further work towards the implementation of these Principles by developing a supporting Toolkit to guide policy-makers and practitioners.

Member states should take steps to ensure that national and sub-national levels of government utilise effectively resources dedicated to public investment in accordance with the following Principles:

A. Co-ordinate public investment across levels of government and policies

1. using an integrated strategy tailored to different places 2. Adopt effective instruments for co-ordinating across national and sub-national levels of government 3. Co-ordinate horizontally among sub-national governments to invest at the relevant scale

B. Strengthen capacities for public investment and promote policy learning at all levels of government

4 .Assess upfront the long-term impacts and risks of public investment 5 .Engage with stakeholders throughout the investment cycle 6. Mobilise private actors and financing institutions to diversify sources of funding and strengthen capacities 7. Reinforce the expertise of public officials and institutions involved in public investment 8. Focus on results and promote learning from experience

C. Ensure proper framework conditions for public investment at all levels of government

9. Develop a fiscal framework adapted to the investment objectives pursued 10. Require sound and transparent financial management at all levels of government 11. Promote transparency and strategic use of public procurement at all levels of government 12. Strive for quality and consistency in regulatory systems across levels of government

Next steps

2014 and beyond:

A toolkit of implementation will be further developed in 2014, with indicators and good practices for the different Principles, illustrated with concrete examples from countries, regions, and municipalities.

The Principles will then be monitored every three years by respective OECD Committees.

Background work linked to the Principles

Publications supporting the Principles

Why investing together? Public investment is not only a major strategic responsibility for governments but also a shared one: almost two-thirds of public investment is undertaken by sub-national governments and major projects tend to involve more than one government level. In a tight fiscal landscape, improving the efficiency and effectiveness of investment, while maximising its impact on growth outcomes, is paramount. Identifying and addressing the governance bottlenecks that impede smooth co-ordination across levels of government can make a significant contribution towards reaching that end.

This report dissects the relationships different government actors form vertically, across levels of government, and also horizontally, across both sectors and jurisdictions. It helps policy makers to understand more systematically how co-ordination works and why it so often doesn’t, as well as shedding light on the mechanisms countries have developed to govern these interactions. In doing so, it addresses another key requisite to organising co-ordination, namely government capacity. Sub-national actors, especially, need to be equipped with the right skills and resources to carry out their responsibilities and to engage with stakeholders, across the public, private and civil society sectors. This report offers a toolkit to policy makers to assess their needs for capacity development.